1996 (3) TMI 19 - HC - Income Tax

Summary

Issues:
1. Interpretation of IT Act, 1961 regarding set off of unabsorbed depreciation from a defunct firm against other business income.
2. Whether carried forward losses and unabsorbed depreciation from a defunct firm can be set off against income from other businesses of partners in a firm.
3. Applicability of Supreme Court decision on set off of unabsorbed depreciation under s. 32(2) of the Act.

Analysis:
The case involved partners in a firm, Sree Abirami Cotton Mills, which incurred losses and was sold in 1978-79. The partners sought to set off carried forward losses and unabsorbed depreciation from the defunct firm against income for 1979-80. The Income Tax Officer (ITO) denied the claim, stating that losses from the closed business cannot be set off. The Appellate Authority Commission (AAC) rejected the claim for business loss but allowed set off of unabsorbed depreciation against other business incomes of the partners. The Tribunal upheld this decision, citing Sampath Iyengar's Law of Income-tax. The Department appealed, but the Tribunal's decision was maintained.

The Supreme Court precedent in CIT vs. Virmani Industries clarified that the business carried on in the following year need not be the same as in the preceding year for availing benefits under s. 32(2). The Court emphasized that unless expressly stated, limitations should not be imposed. Section 72 explicitly requires continuity in the same business for carry forward and set off of business loss. Applying this reasoning, the High Court affirmed the Tribunal's decision to allow set off of unabsorbed depreciation from the defunct firm against the partners' other business profits. The judgment was in favor of the partners, with no costs imposed.